Inflation and Deflation of Price and Money Supply

[SuicidalDemon69]

In the beginning, Cryptocurrency such as bitcoin has no value at all. The price of Bitcoin increased because of the exchanges built to FIAT to cryptocurrency exchanges. The bitcoin has a value because of this trading. The bitcoin value keep increasing because there are more people keep buying this currency.

Why they buy? This is the most important question I've been asking for. Why they buy a coin that has no value at all in the first place. The thing will have a value once someone or a society believes that thing has a value. That how is our society works.
 
Almost every year, more and more exchanges have been established resulting to increase the price of the BITCOIN. The main use case of this currency is for fast peer to peer transaction and much lesser fees unlike fiat currency. The bitcoin price also increase because of lots of new altcoins which will be valued in trading through bitcoin. Because of this technology through being anonymous, you're trading with high risk. Lot's of scams happening every seconds.

On the other side, it helps other people to earn. Especially me. This cryptocurrency and other altcoins, I've earned a lot because of this. The inflation of bitcoin will help few of us to earn through trading.

One thing is for sure is that the price of BITCOIN in the future will keep increasing as long as there are more and more exchanges will be established. Bitcoin is the father of cryptocurrency, I believe also on other popular coins such as LTC, ETH and BCH. But the other coin which is good for small trading is  DOGE coin, which is widely spread on lots of popular exchanges.

The cryptocurrency will only be diminished its value when there is no technology.

[alensport]

On the off chance that quantum processing can really break the hash capacities and crypto which are as of now utilized in the blockchain, bitcoin will develop basically by changing to new crypto and hash works that are not broken by quantum figuring. The bitcoin convention permits the blockchain to utilize any capacity. Each exchange incorporates the directions on what calculations were utilized.

[VEIL-Project]

What has been said in this thread, if anything, about coins who have no fixed cap, and thus unending mining designed?

What has been said in this thread, if anything, about coins who have no fixed cap, and thus unending mining designed?

The reason why there are different coin emission schemes, is that there are different ways to approach the problems of incentivizing the network and network spam. You need to somehow financially incentivize people to support the network, or the network will be weak. You need some kind of transaction fees to discourage network spam, otherwise the network will be taken down with spam.

Different coins handle coin emission in different ways:
Some coins have hard caps and intend to rely only on trading fees to incentivize the network.
Some have very modest tail emission indefinitely to incentivize the network.
Some have more sizable emission indefinitely to incentivize the network and for other purposes, i.e. funding budget system so that the project can be continually funded many years from now.

But whether or not a currency has a fixed hard cap is not the most important consideration when judging whether its economics are sound. I would consider these questions more important, and they can all be achieved (or not achieved) with the 3 models above:

1. Will the network be adequately incentivized while at the same time not cost users too much in fees?

The guarantee of a hard cap and the network being entirely incentivized by transaction fees may sound nice at first, but it can make it harder to balance incentivizing a robust and decentralized network, and having low enough fees that people will use it as a currency.

By having tail emission, you can more easily incentivize miners or stakers regardless of how much use the currency has, and allow for lower fees by subsidizing it with constant coin supply inflation - a good thing for encouraging everyday use, but possibly a bad thing for encouraging long term depending on the answer to the next question.

2. Where do the block rewards and fees go?

Some coins give block rewards and fees to miners (or split between miners and stakers), and paying miners block rewards is basically an inflation-subsidy burdened by holders who have their coin value reduced by inflation. This is when long term holding is discouraged, as long term holders can suffer multi-digit % loss in value attributable to inflation over years or decades (depending on coin).

Some coins give block rewards and fees to holders who stake (or burn fees for deflation and to prevent transaction churning for increasing fees). This is inflation-subsidy as well, but it is burdened by non-stakers, whether because they choose not to or they have insufficient balance to stake. Coins that allow anyone to stake fairly, allow all holders to counteract inflation by contributing to the network. Paying network incentive to holders themselves makes it easier to achieve a good balance between incentivizing the network and low inflation/fees.

3. If there are additional sources of coin emission, do they make sense?

Some coins are funded by donations, some by ICO, and some with built-in budget systems. Coins with built-in budget systems continually mint new coins to make sure R&D, marketing, support, etc can be funded.

Is the budget being used transparently? Cost-effectively? If not, it is possible that the budget is controlled by incompetent rent-seekers, in which case the budget is a cost that is effectively inflation-subsidized by all of the coin holders.

[SenseiT]

Bitcoin and cryptocurrencies, unlike other stores of value, operate and exist outside of both of these, so in one day soon, they can offer a long-term solution to a problem that has proven unreachable by generations of economists for a long period of time.

[pietro_B]

Eventually Central Governments are going to create their own electronic currencies. That alone will increase GDP by a few points

[nematography]

German Hyperinflation 1923. In the aftermath of the First World War, Germany faced high reparation payments. To meet these demands, the government started printing more money – so that firms could continue to pay workers. This led to an explosion in the inflation rate. By the end of 1923, printing money had got out of hand, and the economy experienced hyperinflation.

[controlofmoney]

Ideally one day I will see more about this. It's a great deal to take in and I simply got some answers concerning Litecoin the previous evening, which adds to the heap. For what reason didn't I give careful consideration when it went on economics....that's right side, I went to state funded school, it wouldn't have made a difference. Lips fixed Marking for later prowling, calls....loudly.

[john_doe1988]

Any currency is subject to inflation. But it seems to me that Bitcoin will not live to see it. For this, it is necessary for it to balance supply and demand. After that, due to the added value of the product, it may undergo inflationary processes. However, this is unlikely for many reasons. First you need to measure the gross product in bitcoins and it should be the main currency in the world. But now they are beginning to climb many of the disadvantages of the cue ball, which the altcoins are trying to solve. The growth of his course is largely due not to trade, but to the growth of his popularity and attitude towards him as a means of depositing money. As it once was with the Swiss franc. And, remember what the Swiss central bank did then - it tied the franc to the euro in order to bring down the bloated rate. Otherwise, the franc would burst like a soap bubble. But the cue ball does not have a regulator. Because one day it may collapse. But, based on current trends, I will assume that this will be relatively mild, if the Altcoins devoid of the disadvantages of Bitcoin pick up the baton.

[roworship]

Sometimes the money supply is hard to calculate and is constantly changing. Large increases in the money supply are often just due to changes in the way people hold money. For example, an increase in credit card use may cause an increase in th broad money supply M4.

[ShadowPresidentOfUkraine]

Yes!
One of the main global problems is the uncontrolled printing of fiat currencies.
This gives rise to the power of the elected elite.
This creates an opportunity for war.
This contributes to the depreciation of the real income of ordinary people. Inflation.

[Denbella]

Economically, inflation occurs as a result of too much high volume of money supply in the circulation which result to persistent increase in price level while deflation is the persistent decrease in the price level as a result of less volume of money supply.
  In the crypto world, price deflation is the term used to describe the prices of goods and services as they decrease because the value of bitcoin goes up. While price inflation occurs when prices of good and services increase because the value of bitcoin goes down. There is opposite relationship of price and value in regard to goods and services,and bitcoin when dealing with price inflation or price deflation.

[Freezkidd1]

why do supply of money effect the inflation or deflation

[RendaW]

Deflation is generally defined as the generalized decrease in the prices of goods and services, which is when the inflation rate reaches a negative value. In the case of inflation, the value of the currency decreases, meaning that it loses purchasing power over time.

While in the case of deflation this increases because it has a fixed supply, which generates a form of shortage of money. Deflation can be seen as the general decline in the prices of goods and services, but can also be applied to the increase in the purchasing power of a currency, such as the euro or the dollar

So neither deflation or inflation can be defined as something strongly positive or negative. They are both can have quite a controversial effect

[tiejettison]

In a recession, there is spare capacity in the economy. Therefore, an increase in the money supply, merely helps to get unemployed resources used in the general economy. Therefore, in the case of a recession, increased money supply is unlikely to cause inflation. In a liquidity trap, interest rates fall to zero but this doesn’t prevent people saving. In this situation, there is a fall in the velocity of circulation and this can cause deflation. In this situation, increasing the money supply will not necessarily cause inflation.

[kifumi]

An area dedicated to discussing the differences of these two terms and the theories supporting them.

I'm looking forward to an in-depth discussion on the subject! I've noticed that confusion between the two seems to come up quite a bit on the forum, and thought it may be reasonable to dedicate a thread on the matter.

Pulled from a discussion in Wall Observer


Price-Deflation is what you are used to hearing about in Bitcoin. That term is used to describe the prices of goods/services as they decrease, because the value of Bitcoin goes up.

Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.

So, when dealing with Price-Inflation or Deflation, there is an inverse relationship of price and value, in regard to goods/services and Bitcoin.

Example: As the Bitcoin price goes from $10 to $20, the prices of goods/services goes down from 20BTC to 10BTC. As the Bitcoin price goes from $20 to $10, the prices of goods/services goes from 10BTC to 20BTC!

Why does the price of Bitcoin go up and down? The price of BTC goes up and down based on the exchange rate, or market price, which is set by buyers and sellers, or traders. They directly trade the Bitcoin currency with all sorts of other currency, and even some with gold; the most popular being the USD (US dollar). They set the price when executing orders to buy or sell. I will get into the actual reason of why the price fluctuates in the last section.


Now that we've gone over PRICE Inflation and Deflation (which honestly, to me, is a term made popular by Keynesian's to hide the real facts, as price inflation/deflation is simply the market exchange rate, reflective of the money supply into a currency from itself and other currencies), let's go over the REAL inflation/deflation of a currency (otherwise known by many as Monetary Inflation).

MoneySupply-Inflation is when the value of Bitcoin decreases when the total supply of Bitcoin increases. In our current state, this is at a generation rate of 25 BTC every 10 minutes.

MoneySupply-Deflation will essentially never occur. It is when the value of Bitcoin increases when the total supply of Bitcoin decreases. This may happen, say, when someone loses their private key and all the BTC associated with it are lost. This effectively "makes the rest of us richer". That being said, there is a SET DECREASE in the generation rate of BTC, so you have sort of a "deflationary effect" in the value, as long as more exchange occurs for BTC at a rate which is faster than that set generation rate.

When all 21 million coins are produced, the MoneySupply will be neutral, and the value will continue to increase (prices will decrease, consequently), as long as people continue to exchange in BTC.

This leads me to the last section.


What determines the PRICE of Bitcoin? The VALUE of Bitcoin at a particular moment.

What determines the VALUE of Bitcoin? The SUPPLY and DEMAND of Bitcoin in the economy.

What determines the SUPPLY of Bitcoin? Currently, the MoneySupply-Inflation rate of 25 BTC every 10 minutes, and traders willing to SELL Bitcoin to BUYERS in exchange for other supplies of money (currencies).

What determines the DEMAND of Bitcoin? Traders willing to BUY Bitcoin from SELLERS in exchange for other currencies.


Therefore: BUYERS, SELLERS, and MONEYSUPPLY-INFLATION (miners) determine the VALUE of Bitcoin, which determines the PRICE of BTC as BUYERS and SELLERS trade based on that VALUE (or supply and demand) of Bitcoin.


We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). The cool thing is that we DO know the MoneySupply rate, and we DO know the exchange rate. From this, we can determine a real value of Bitcoin when simply multiplying the two factors; a sort of inflation-adjusted view of the currency.

Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency. On a side note, most of the big Market Makers (FX Traders) use this price movement as a way to make a profitable living, as well. Especially when price fluctuations are a consequence of hype or fear (bubbles, cliffs), not factual supply/demand data, and are wildly out of the real price range.

Thus, if you analyze the proper macroeconomic data in an attempt to forecast future DEMAND for more Bitcoin (price increase), you will realize some very interesting things, and have a more accurate picture of where the price is going...

Happy trading!

Price-Deflation is what you are used to hearing about in Bitcoin.  The prices of goods/services as they decrease, because the value of Bitcoin goes up.
Price-Inflation is the opposite. When prices of goods/services increase because the value of Bitcoin goes down.
We don't exactly know the totality of the supply and demand. Sure, we could try and aggregate data from all the exchanges, but we will never be accurate as there are exchanges which can not be accounted for (OTC). Effectively, the quantitative analysis of supply and demand is really what the currency exchange traders attempt to accurately determine which is conveyed through buying and selling of Bitcoin, setting a VALUE via the PRICED exchange rate of the currency.

[roworship]

In normal economic circumstances, if the money supply grows faster than real output it will cause inflation. In a depressed economy (liquidity trap) this correlation breaks down because of a fall in the velocity of circulation. This is why in a depressed economy Central Banks can increase the money supply without causing inflation. This occurred in the US between 2008-14 However, when the economy recovers and velocity of circulation rises, increased money supply is likely to cause inflation.

[usamach]

Wow! A post that could have come from me. I agree completely. I would add that one should snip out the images as well.

I have seen that on some forums the quote is limited to a dozen lines or so, and at the bottom of the quote there is a ...more... type of link. Clicking this expands the quote. I have suggested several times that this is added to the forum, as it would reduce the work of the mods.

[Valer4ik]

How this will happen is what interests me the most.

I very much doubt that this will be a direct deal, such as a client buying futures for a day, after a day he receives an address to his btc - a certain amount of real btc.

Most likely, as in the case of stocks, customers will be obliged to store their Bitcoins in a “depository approved by the regulator”, i.e. Bitcoins will not be able to leave the bakkt wallet limits, at least until other "approved" custodians appear

[ningrumxxi]

Conventional currency is very vulnerable to inflation, because its use is regional and sometimes only applies in one country so that sometimes the currency is very much while the small demand can cause inflation but if the supply of currency is a bit medium the demand can cause a lot of currency to rise or deflation, but things like that might not apply to global currencies used in all countries the decline in value is very small because there are many users.

[abreastabran]

Most people understand that a drastic increase in a country's money supply will produce inflation. This is because if the monetary supply increases faster than demand, the value of each unit of currency will fall. To put it another way, if the supply of money were to grow faster than the demand for it, the result would be too many dollars chasing too few goods which is the very definition of inflation. Despite the Fed's massive capital infusion, why is inflation only 1.4%? This is the precise question we will attempt to answer in this article.